Chapter II

Review of Related Literature

This chapter is organized into three parts namely; (1)

Management Styles, (2) Monthly Net Income, and (3)

Synthesis.

The First Part, Management Styles, discusses the

different studies concerning the importance of management

styles and their impacts to their business.

The Second Part, Monthly Net Income, tells about

relevant studies on monthly income of the restaurants and

its influence on business enterprises.

The Last Part, the Synthesis, sums up the literature

reviewed in this study.

Management Styles

Management styles are the vital factor in the

achievement of success of any organization. It is the prime

pre-requisite for the realization of organizational

objectives (Okon & Isong, 2016). Management style is one of

the critical antecedents to organizational effectiveness.

Management style is simply construed as a way to manage an

organization. It is the general approach of a manager in

 15

dealing with people at work and exercising of authority

over subordinates in an effort to reach

organizational goals (Quang, 2002 & Hartzell, 2006).

The term management style can be defined as the method

a manager uses in administering an organization (Robbin,

2003). It includes controlling, directing, and indeed all

methods used by the manager to motivate subordinates to

follow their instructions. It can also be described as the

particular practice used by the manager to direct

the affairs of an organization. A management style is

a way of life operating throughout the enterprise and

permits an executive to rely on the initiative of the

personnel of an entity. For small scale businesses to grow,

the operators must adopt an effective management style.

Management style is a managerial parlance often used to

describe the how of management. It is a function of

behavior associated with personality (McGuire, 2005).

Management style can be understood as a way to manage an

organization. Management style is “the adhesive that binds

diverse operations and functions together”. It is the

philosophy or set of principles by which the manager

capitalizes on the abilities of the workforce. Management

 16

style is not a procedure on how to do but it is the

management framework for doing.

Effective management style is the extent to

which a leader continually and progressively leads and

directs followers to a predetermined destination agreed upon

by the whole group. It is the manner of approach to issues

of the managers towards achieving the goals of their

organization by transforming various resources available to

any organization into output through the function of

management (Field & Dubey, 2001).

Manager is the beating heart of an organization and his

ideas all always flowing and this is why successful

companies have been always caring capable and qualified

managers’ name with them. Studies show that management

style of the managers have a significant effect on the

efficiency of an organization and these are manages who,

with the use of ideas of great people such as Blanchard,

Dessler, Likert etc, have managed to steer their company to

its destination in different time and places (Luthans,

2008).

The style that a manager uses as his dominant style and

for coordinating the affairs in performing the activities of

an organization and the way he performs his tasks have the

 17

highest level of effect on execution process of tasks as

well as the cooperation level his colleagues provide him

with. This means that the behavior style of the manager, the

way he interacts and the style he adopts in this

relationship guarantees the highest percentage of success of

him (Vahedi & Asadi, 2013).

Management style affects productivity when the workers

feel they do not belong due to management based on ethnic,

religion, race, age and culture, which reduces dedication

and commitment to work. The government in many instances has

assumed the function of entrepreneurs and taken over the

managerial functions with instances abound to convince

everyone that the government has not fared well as a good

manager and even perform worse than private

entrepreneurs (Femi & Chukwubueze, 2015).

Management style is influenced by the goals and purpose

of the organization, which are in large part established by

the type of business being managed. The approach managers

take will vary based on the type of organization. For

example, a manager of a for-profit company may be able to

motivate employees through bonuses for sales targets or

profit sharing. This strategy cannot work for a non-profit

or mutual-benefit corporation. In those cases, management

 18

must either appeal to the employees' sense of duty to the

mission of the non-profit or to the benefit they would

receive from a well-run mutual-benefit corporation. While

every organization poses different challenges, effective

managers consider the type of organization and adjust their

style to fit those circumstances (Boundless, 2016).

These studies raise the possibility that managers’

choice of optimistic or pessimistic language in corporate

disclosures would similarly be impacted by a manager’s

style. Given the limited constraints that exist with respect

to the choice of language and the difficulty of verifying

the legitimacy of language ex post, it is likely to be

particularly prone to the effects of managerial style

(Hambrick 2007).

In recent times, commonly exhibited styles of

management includes authoritarian, coercive,

authoritative, democratic, affiliative, permissive,

indifferent, coaching, pacesetting, visionary, bureaucratic

and defensive styles of management (Effere, 2005).

A survey was conducted by Worrall (2004) in

United Kingdom and found that most managers were

bureaucratic and restrictive in their management styles

which were not conducive to development of high performance

 19

cultures for creativity and innovation to flourish in most

organizations.

There are several management styles identified

and grouped by different management scholars. It is

clearly evident that the classification of management styles

is overlapping and homogenous with slight diversity. It is

observed that the variation of management styles arises due

to differences in the types of business organization, nature

of staff of these organizations and settings. This

demonstrates that nations have basic management styles with

modifications largely due to the influence of cultural

distinctions and peculiarities (Nwadukwe & Timinepere,

2012).

In the study of Nwadukwe and Timinepere (2012), they

found out that participative management style was

predominantly adopted among managers of private

enterprises in Eastern Nigeria. The finding suggests that

employees of these private enterprises were involved in

setting goals, making decisions, solving problems and

making changes where necessary in the organizations.

Furthermore, the paternalistic style of management was also

widely in practice. This finding had the implication of

patriarchal influence on business in the Igbo

 20

traditional cultural perspective, particularly in small

scale enterprises where a sizable number of relatives and

friends to managers constitute the workforce.

In the study of Femi and Chukwubueze (2015), they found

out that the style of leadership determines if workers’

would perform well during production. The style adopted

by management has a great influence on workers. This

can affect productivity in the organization. This study

revealed that incentives can influence workers’ productivity

when they are not encourage properly through financial or

non-financial incentives such as (i) recommendation

for normal promotion when necessary (ii) poor verbal

communication between manager and workers’ (iii) never

involved in decision making in the organization even

in matters that concerns the workers (iv) productivity not

fully utilized. The study also revealed that workers

involvement in decision making increases productivity, but

from the findings workers are not always involved in

decision making especially the junior workers who are

at the factory section this was shown from the

study organization.

Lina and Jan (2016) concluded in their study that there

are factors influencing personal management style. It can be

 21

divided into two main groups: objective, which depend on the

surrounding environment factors and cannot be affected, and

subjective, which purely depend on personal qualities of the

manager and can be developed and improved (personal

features, personality traits, mental characteristics, level

of intelligence, education, competence, etc.

Net Income

Net income is known as the bottom line, and is the

amount of profit the company made after paying all of its

expenses. This is also known as the company's earnings. Net

income lets a person know how much profit the company made

after paying all of its expenses. This is significant to the

investor because this is the amount of money the company has

available to pay dividends, repurchase shares, reinvest in

the business, or simply add to its cash (Motley Fool, 2017).

Net income is derived from the income statement, which

is based on the accrual method of accounting. Under accrual

method, revenue is recognized when earned and expenses are

recognized when incurred. Net Cash and Net income are both

critical elements allowing a view to the health of an

organization. While it is imperative that a business has

visibility to the cash available to pay debt, make

investments, make capital purchases and pay its

 22

shareholders, it is equally important to have visibility to

all revenues and expenses (Study Moose, 2016).

Net income calculations portray a more accurate view of

the long-term profitability. Also because of the timing

differences between when revenue and expenses are

recognized, the accrual method behind the net income model

will produce visibility that is more accurate. Net Cash and

Net Income are both critical elements allowing a view to the

health of an organization. While it is imperative that a

business has visibility to the cash available to pay debt,

make investments, make capital purchases and pay its

shareholders, it is equally important to have visibility to

all revenue and expenses (Gibson, 2013).

In the statement of comprehensive income, the result is

an income statement that includes the net income (obtained

from the balance between revenues and operating costs) with

changes in the value of assets that are recognized only

concerning the equity: the other comprehensive income. In

this way, the performance is not only potential but is

enlarged to all the elements that meet the definition of

income and expenses (Gazzola & Amelio, 2014). Net income is

reported on the income statement and is included in the

retained earnings section of stockholders’ equity. Other

 23

comprehensive income items are not reported in the income

statement; they are included in the accumulated other

comprehensive income section of stockholders’ equity.

The net income accrues directly to the owners, that is,

it represents an increase in the wealth of the proprietors.

The proprietorship is considered to be the net value of the

business to the owners (Kitonga, 2013).

Kanagaretnam, et.al (2004) found out that net income is

a better predictor for future firm's performance than

aggregate comprehensive income

Restaurants

The restaurant industry has become one of the most

profitable industries in the world. International and local

restaurant chains are satisfying the demand of customers in

variety of range of products and services (Sabir, et. al,

2014).

Basically this is the era of globalization and

due to advancement of media world is shrinking in

terms of culture and habits so the fashions as well

as eating patterns are also being opted among all

over the world and this the reason for such a huge spread of

restaurant industry in the world.

 24

Restaurants are generally define in the literature as

organization providing food, beverages and services at a

specific location in return for monetary gain. Restaurants

can offer different cuisine and concepts as well as

establishments styles, and operate under different

management structure. Nevertheless, while the industry is

diverse, commercial restaurants all share similar attributes

as they offer food and beverages to customers for

consumption on the premises in return for monetary grains

(Brotherton, 2003 & Kiefer, 2002).

The restaurant industry is an important component of

our nation's economy, and employment opportunities in this

sector should continue to grow in the future as a direct

result of the demographic changes taking place. Indian

consumers spend only 2.4 percent of their food expenditure

in hotels and restaurants. American and British consumers,

by comparison, spend 46 percent and 29 percent respectively,

of their food expenditure on away from-home meals. This

indicates that there is significant scope for the growth of

food service sector in India in the years to come (Singh,

et. al, 2004).

In the study of Chen (2014), he modify that there are

two restaurant styles which include casual and formal. A

 25

casual restaurant provides meals at moderate prices and

targets family and/or middle-class customer markets.

Moreover, the menus in casual restaurants often provide more

choice than those in formal restaurants. Formal restaurants

use higher-quality ingredients and enhanced cooking

techniques, resulting in higher-price menu items, targeted

to higher up-market customer segment (McNeill, 2000).

Muller and Woods (1991) as cited by Chen (2014) suggest

environmental conditions have an influence on a restaurant’s

success or failures and as the restaurant industry’s

operating environment is continually changing, understanding

the environment and how to react to the changes is important

for restaurant survival.

Today, restaurant business, specifically the

business dealing with fast food, is characterized as a

highly competitive market. Food is a core product and it

plays a crucial role in the restaurant business (Liu and

Jang, 2009). Customers are clear about what kind of food

quality they want, which has led to the growth of food

industry.

Litz and Stewart (1998) as cited by Chen (2014) explain

that owning and operating individual restaurant is an

attractive option as it provides freedom for entrepreneurs

 26

as they get to decide on most operational factors, such as

location, purchasing and ordering, hiring and training

staff, price and quality of the products and marketing and

financial control.

Several researchers have provided strong support that

food quality is one of the key factors for success (Du and

San, 2005; Lawless, 1995). Hence, to be able to gain

competitive advantage and survive in the market, it

is therefore essential for the restaurant managers to

identify which attributes are vital and reachable to

consumers and to know which parameters have impacts

on the purchase decision (Bryhni et al., 2002)

While restaurant industry is a highly competitive

industry, it is essential for restaurant operators to

have a deep understanding of the attributes of

favorable post-dining behavioral intentions. The

attributes such as saying good things about the

restaurant, recommending the restaurant to others and

repeat purchasing can provide a useful guidance to

restaurant operators to attract and retain customers (Liu &

Jang, 2009)

Restaurant sales on the state and local levels are

often closely tied to economic and demographic trends. Just

 27

as the strength of the economic recovery varied

significantly by state, so too has the general business

environment for restaurants (National Restaurant

Association, 2014). When restaurateurs want to spot emerging

culinary trends they go to what they consider the ultimate

source - customers.

Foods and beverages purchased from restaurants,

particularly limited-service establishments, tend to be more

calorie-dense and of poorer nutritional quality than those

consumed at home. In many cases, consumers lack access to

the nutritional information they need to help make healthy

choices at restaurants (Research Brief, 2008).

Apart from the various restaurant types, restaurants

can be classified into different management and ownership

structures including chain restaurants, franchised

restaurants and independent restaurants (Parsa, et.al,

2005).

Customers and their relationship with restaurants

performance have also been researches. Peppers and Rogers

(2004) suggest good customer relations are the foundation of

every restaurant business. According to Charise (2010), the

client base or also known as the customers base, is a

 28

company’s primary source of sales. It consists of current

customers as well as potential customers.

A restaurant profit and loss statement, also known as a

restaurant P&L, reflects your restaurant's revenue and costs

during a specified period of time. Basically, it functions

as a bank statement for your restaurant to help you track

your business's progress. Although many people know a

restaurant profit and loss statement is important to

understanding their business's growth. Restaurant profit and

loss statements can be used weekly, monthly, or yearly.

Weekly statements are recommended so you can keep track of

what is most profitable or costly to your establishment each

week. If any adjustments are necessary, you can make those

changes more quickly. Many restaurants will also use monthly

and yearly restaurant profit and loss statements to show

overall progress (WebstaurantStore Food Service Equipment

and Supply Company, 2017).

Synthesis

Management styles are the vital factor in the

achievement of success of any organization. Management style

is simply construed as a way to manage an organization. It

is the general approach of a manager in dealing with people

at work and exercising of authority over subordinates

 29

in an effort to reach organizational goals. It

includes controlling, directing, and indeed all methods used

by the manager to motivate subordinates to follow their

instructions.

Effective management style is the extent to

which a leader continually and progressively leads and

directs followers to a predetermined destination agreed upon

by the whole group.

The behavior style of the manager, the way he interacts

and the style he adopts in this relationship guarantees the

highest percentage of success of him. Management style of

the managers have a significant effect on the efficiency of

an organization and these are manages who, with the use of

ideas of great people.

Net income is known as the bottom line, and is the

amount of profit the company made after paying all of its

expenses. This is also known as the company's earnings. Net

income lets a person know how much profit the company made

after paying all of its expenses. This is significant to the

investor because this is the amount of money the company has

available to pay dividends, repurchase shares, reinvest in

the business, or simply add to its cash.

 30

The restaurant industry has become one of the most

profitable industries in the world. International and local

restaurant chains are satisfying the demand of customers in

variety of range of products and services. The restaurant

industry is an important component of our nation's economy,

and employment opportunities in this sector should continue

to grow in the future as a direct result of the demographic

changes taking place.

Restaurants are organization providing food, beverages

and services at a specific location in return for monetary

gain. Restaurants can offer different cuisine and concepts

as well as establishments styles, and operate under

different management structure.